Reports Point to Economic Improvement – Market Update

This week we have a couple of important housing numbers as well as industrial production and inflation metrics to look forward to.

Headline News

Housing Market Index: Home builder sentiment came in at a flat but reasonably strong 58 in May. The six-month sales outlook comes in at 65 and present sales at 63. Traffic of potential buyers in new homes continues to lag behind at 44, unchanged for the month. The West has the most positive outlook for builders at 67. Meanwhile, the South is at 60 with the Midwest on its heels at 59. The Northeast, which has a limited market for new homes due to density, is way behind at 36.

Consumer Price Index (CPI): Prices were up 0.4% in April and they’re up 1.1% on the year. Food and energy prices had a bit of an effect on this. If you take those categories out, inflation is only up 0.2% for the month. However, energy prices have for the most part been down, losing 8.9% on the year. This means that despite the rise in April inflation still comes in higher, at 2.1%, when food and energy are taken out. Turning to individual categories, prices for apparel were down despite higher import costs. Medical care costs were up 0.3% for the month and 3.0% on the year. Housing prices were up just 0.2% and food is up 0.9%.

Housing Starts: Housing starts were up 6.6% to a seasonally adjusted annual rate of 1.172 million in April. However, they’re now down 1.7% on the year. Single-family starts came in at 3.3% and are up 4.3% on the year. The weakness in this category comes from declining multi-family starts. On the permit side, they rose 3.6% to a rate of 1.116 million. However, it’s even deeper in the negative column annually, down 7.2%. Like starts, the weakness is in multi-family permits. Single-family permits were up 1.5% to 8.4% higher on the year. Turning to the regional data, the Midwest had the biggest gains for both starts and permits. The South follows while the West and Northeast are quite a bit behind.

Industrial Production: Production was up 0.7% in April following a 0.3% bump in the manufacturing rate. Capacity utilization was up 0.5% to 75.4%, showing increased factory production. However, these gains are a little muted when you consider manufacturing is only up 0.4% on the year. Vehicle production was up 1.3% in April despite weak sales so far this year. Another sector showing strength is business equipment production, which is up 0.8% in April, despite being down 0.5% on the year. Production of consumer goods was up 1.2% in April and is up 1.3% on the year. Mining shows no sign of breaking free of its slump, down 2.3% in April and 13.4% on the year.

MBA Mortgage Applications: Mortgage applications were down 1.6% as purchases fell 6.0% for the week and refinances were up 1.0%. The average rate on a 30-year fixed mortgage remained unchanged at 3.82%.

Jobless Claims: Initial claims were down 16,000 to 278,000 this week after spiking briefly last week. The effect of last week’s jump has been to push the four-week average 7,500 higher at 275,750. Continuing claims told a similar story. This week’s claims were down 13,000 to 2.152 million. Meanwhile, the four-week average is up 5,000 to 2.143 million.

Existing Home Sales: Existing home sales were up 1.7% in April bringing the seasonally adjusted annual rate to 5.450 million. Sales are up 6.0% on the year, a big jump from 1.5% in March. The median price of an existing home is up 5.0% to $232,500, gaining 6.3% annually. Market supply is up 9.2% as well, bringing total supply in the market to 4.7 months from 4.4 months in March. The Midwest is up 12.1% for the month and the year while the Northeast increased its sales by 2.8% in April and 17.5% annually. The South dipped a bit, but it’s still up 4.3% year-over-year. The market in the West is getting a bit worrisome. Sales are down 1.7% in the month and 3.4% on the year.

Mortgage News

Mortgage rates were unchanged or very slightly up last week.

Thirty-year fixed-rate mortgages (FRMs) averaged 3.58% with an average 0.6 point for the week ending May 19, 2016, up from last week when they averaged 3.57%. A year ago at this time, 30-year FRMs averaged 3.84%.

Fifteen-year FRMs this week averaged 2.81% with an average 0.5 point, unchanged from last week. A year ago at this time, 15-year FRMs averaged 3.05%.

Five-year Treasury-indexed hybrid adjustable rate mortgages (ARMs) averaged 2.80% this week with an average 0.5 point, up from last week when they averaged 2.78%. A year ago, five-year ARMs averaged 2.88%.

Stock Market

Stocks were mixed last week after the release of the Fed meeting minutes showed that an increase in short-term interest rates was on the table for June. If you haven’t locked in your mortgage rate yet, now would be an excellent time to do so.

The Dow Jones Industrial Average posted its fourth consecutive weekly decline, losing 0.2% since last Friday’s close. It did finish the week on a high note, up 65.54 points to 17,500.94. The S&P 500 was up 12.28 points to 2,052.32, gaining 0.28% on the week. The NASDAQ rose 57.03 points to 4,769.56. It was up 1.1% on the week.

The Week Ahead

Tuesday, May 24

New Home Sales (10:00 a.m. ET) – New home sales measure the number of newly constructed homes with a committed sale during the month.

Wednesday, May 25

MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

International Trade in Goods (8:30 a.m. ET) – The Census Bureau’s Bureau of Economic Analysis has begun breaking out the goods from the rest of international trade numbers to get an idea of import and export estimates for GDP calculations.

Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The four-week moving average of new claims smooths out weekly volatility.

Pending Home Sales Index (10:00 a.m. ET) – The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. Specifically, it’s a leading indicator of existing home sales, not new home sales.

Friday, May 27

GDP (8:30 a.m. ET) – This measures the monetary value of all final goods and services produced within the U.S. This report is released on a quarterly basis.

Consumer Sentiment (10:00 a.m. ET) – The University of Michigan’s Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending.

It looks like a fairly packed week of economic news is headed our way. We’ll cover it all. But before you think we’re all about mortgages and economics, you should know that we cover all kinds of stuff in the areas of home, money and life. If those topics sound appealing to you, you can catch all of our articles by subscribing to the Zing Blog below.

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